Tell Your Money Where to Go (Instead of Wondering Where It Went)

I use a budget. In general, I know how much money I’ve got coming in and going out each month. However, I’ve noticed many of the people in my life do not use a budget, and in fact, really dislike the word budget itself. It has a lot of negative connotations, apparently. I’ve heard many objections to budgeting, things like “it sounds so restrictive”, or “I just want to have fun without worrying about money all the time”, or even “its too complicated for me”.

So, let’s reframe the whole thing. I’m going to call it a Spending Plan. I’m going to encourage you to create a plan for your money, just like you would have a plan if you were building a house, planning a wedding, or tackling any large project. A Spending Plan is not restrictive AT ALL. The boundaries are only your imagination, your values, and your income (which let’s be honest, your income is limited whether you are writing it down or not).

Far from being restricting, I find a Spending Plan to actually bring me much greater freedom and peace of mind! I’ve never had to second guess a purchase – the money was there, it was in my plan. I don’t feel guilty for buying something crazy expensive or impractical – you see, it was in the budget. The vacation is much sweeter when you save up for it in advance, and when you come home with no lingering debt your memories are not tinged with guilt or worry.

A weird side effect of budgeting, at least at the beginning, is especially noticeable if you are in a partnership. When you are making a household budget, you actually have to communicate about things. Negotiate. Compromise. Talk about what’s important to you. A lot may come to light. He thinks HBO is vital. She may want a $200 line item for restaurants. He’s got no interest in curbing his addiction to new video games.

You also get to DREAM together. This is where things get fun. What are your hopes and plans for the future? What does your ideal life look like? Do you want to take an exotic vacation next year? That can go in the budget! Did you always want a vintage tea set, or to ride in a hot air balloon? What’s IMPORTANT to you? What do you value? These questions are huge, and money is really tied up in them. A lot of dreams cannot be reality without a bit of planning and some money. Do you want to have or adopt a child? I hear those little suckers are expensive.

So, for the practicalities. A spending plan is literally telling your money where to go, in advance. It’s a plan for spending your money. If you do not have a plan, you certainly will spend money, but it may not be on the things that you most value. A spending plan in its simplest form is your income and expenses. At the top of a spreadsheet or piece of paper, you list your income, and along the side you list all your anticipated expenses. You subtract all those expenses from the income at the top, and the bottom number should be zero. If it’s less than zero – you’ve got some decisions to make. If it’s more than zero, add more expenses until it is zero.

Now, your income is all the money you’ve got coming in, your salary, child support payments, things of that nature. Your expenses can be things that are fixed, like rent, or categories that fluctuate, like groceries or electricity. Expenses will also be needs (groceries) and wants (restaurants or entertainment). Expenses also include short-term savings like car repairs, long-term retirement savings, and donations to charity.

Now sometimes, when the line items in the “want” category are all added up, there’s less money in the “coming in” than the “going out”. In this case, priorities have to be set. What’s more important, Netflix or the cable package? Can you spend a bit less on clothes each month, and a bit more on food? Let me say that your plan will be different than anyone else’s, and let me also say that each month, your plan may change. You’re not going to get it perfect at first. It will evolve as you learn what you can drop without feeling pinched, and what you don’t want to sacrifice. If you write down all your expenses and the total income cannot cover them, at least you are aware of that. Awareness is the first step toward making a change, and you should be very proud of yourself for taking this huge leap forward.

The important part is just to write it down, to align your spending with your values, and to put your gold where your heart is. It feels really good.

Now that we have a plan for our money, I NEVER worry about money. I know that we are making decisions that align our most closely held values with our spending.

There are lots of tips for budgeting that I don’t have time for here (got a question? put it in the comments!) but one big hint: put a line item in the budget for cash to blow. That sounds crazy, and maybe it is. But hey, you’re probably going to blow a bit of money here and there, so may as well write it down. It has lots of advantages – you each get a little “free money” with no questions asked. No judgement in a partner’s eyes that you went to Starbucks twice this week. And it keeps things on an even playing field, you each get equal amounts of blow money (money to blow, not money for blow) so everything is fair, and no arguments that she got to spend more this month, no tallying up purchases to prove the other is a spendthrift. If one of you wants to save your money over a few months to purchase something big, go for it. If one of you has a vice that the other doesn’t want included in the budget (cigarettes?) it goes into this category. It’s like a pressure release valve for money arguments.

I do provide financial coaching, so if you have specific questions about setting up a Spending Plan or you are running into problems, shoot me an email or drop a comment below.

How do you feel about Budgets – love them, hate them? Set up your own, and let me know how it goes!

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